UK shop prices continue to show annual declines. A mindset may have set in.

Retail is in decline across developed economies as online shopping becomes the norm. High street retailers simply cannot compete with online stores who “stack’em high and sell’em cheap”. I got a taste of this myself a couple of weeks ago when I took my daughter to the mall to search for a party dress. Notwithstanding the fact that it was nice to have some father-daughter bonding time, traipsing round the mall to browse in shops feels more like a leisure activity in 2018, rather than a purposeful visit to purchase goods. After a few (!, honestly it wasn’t that bad) hours, she couldn’t find anything that a) she liked and b) was in her budget. We drove home, we switched on the computer, ordered the affordable dress she wanted, and it arrived the next day. For apparel, shops like Boohoo, who only sell online, are tapping into the desire for affordable and efficient shopping.

Shops with premises have been under increasing pressure and, as the chart below shows, prices of goods in physical shops have been declining on an annualized basis since 2013. During 2017 though, the rate of decline started to slow and, towards the end of last year, the annualized change looked like it might get back above zero (signaling rising prices). However, the most recent data shows that December brought the largest price declines since March 2017, with the All Items index falling by 0.60%. The main contributor was the Non-Food index which fell by 2.1%.

What’s quite fascinating about this chart though is that the strong decline has come as the rate was threatening to go positive. Notice that, in 2009, the index fell to just below zero and then recovered. From a charting perspective, you could say that zero held as support. Now, however, zero has held as resistance. When old support becomes resistance, it is normally a strong sign that there has been a pivot in psychology. In this case, the pivot could mean that the idea of declining prices of goods sold in UK shops has become ingrained in the psyche. People may not only want discounts now, they may expect them. When a mindset of declining prices sets in, it is famously difficult to reverse, no matter how hard authorities try. Just look at Japan.

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